China's 'Zero Covid' Policy Needs Change, Curbs Risk Stalling Economy: Chinese Think Tank

The Xi Jinping's government needs to focus on shoring up sinking growth, said the think tank Anbound Research Center in a report published on Monday. While the report did not list any possible changes, it noted that the United States, Europe, and Japan —rivals of China— are recovering economically after easing Covid-19 curbs.

Zero Covid refers to the China's government's approach of imposing harsh blanket lockdowns in entire localities and even cities when infections are found. The idea behind this is to keep people indoors and stop the viral spread, therefore minimising infections and deaths. This is opposed to the 'living with the virus' approach taken in the most of the rest of the world where infected pepole are isolated, their contacts are tracked, tested, and quarantined, but blanket lockdowns are not imposed in cities just because of a cluster of infections.?

Zero Covid approach has come at great economic costs to China as economic activity in regions locked down comes to a standstill. China's financial hub Shanghai and capital Beijing were locked down for months earlier this year. " In March, an estimated 345 million people across 46 cities were in full or partial lockdowns, a population accounting for 40 per cent of GDP," said the Center for Strategic and International Studies (CSIS) in a report.

“Preventing the risk of economic stall should be the priority task," said Anbound Research.

While these comments might come off as mild in any other country, they are almost unknown in authoritarian China where there are severe consequences to not towing the Communist Party's line. Moreover, the disagreement has come in a politically sensitive year when Xi, China's most powerful leader since at least the 1980s, is expected to try to extend his time in office.

The report, dated Sunday, was posted on the Anbound Research Center's accounts on the popular WeChat messaging platform and the Sina Weibo microblog service but was deleted from both on Monday afternoon.

The anti-virus curbs are widely expected to stay in place at least until after a Communist Party meeting in October and November at which Xi is likely to break with tradition and award himself a third five-year term as leader.

Economists warn that China needs to boost growth that sank to 2.5 per cent over a year earlier in the first half of 2022, less than half the official annual target of 5.5 per cent, after Shanghai and other industrial centers shut down starting in late March to fight virus outbreaks.

“China's economy is at risk of stalling" due to the “impact of epidemic prevention and control policies", the think tank said.

The economy also is under pressure from a plunge in real estate activity after Beijing tightened controls on the industry's use of debt.

Economists and public health experts have warned since mid-2021 that “zero COVID,” which aims to keep the virus out of China by isolating every case, is unsustainable. Officials respond that they have no alternative because letting the virus spread would overwhelm Chinese hospitals.

A Shanghai physician with 3 million followers on social media, Zhang Wenhong, was shut down by official criticism and targeted by a plagiarism investigation in 2021 after he suggested China's strategy could change and the world “needs to learn how to coexist with the virus”.

China's policy has kept deaths and infection numbers low but led to a wave of business failures. News reports say local governments are cutting public services and wages for civil servants to pay for virus testing and anti-disease measures. The CSIS report cited above noted that mass testing, part of the Zero Covid policy, also comes at a huge financial cost — as much as 1.5 of China's GDP.

"While the Chinese leadership believes that massively expanded mass testing will identify infections early and trigger measures to contain the outbreak without causing harmful disruption to the economy, it is still too early to know whether that approach will succeed. One thing is known: testing at this scale costs tens of billions of dollars, which may amount to 1.5 per cent or higher of China’s GDP," reported CSIS.

The economic impact of repeated shutdowns of companies and neighbourhoods is more severe than last year, the Anbound Research said. It said that “freezing effect” might be even worse than when the outbreak began in 2020 and the whole economy shut down temporarily.

On Monday, the southern city of Shenzhen, a center for technology and finance that borders Hong Kong, announced a three-day closure of some residential areas to contain an outbreak and shut down the world's biggest electronics market. Also Monday, the government of Shenyang, the most populous city in the northeast, postponed the start of in-person classes this week for primary and high school students.

China needs to “focus on economic recovery and gradually integrate with the world”, the Anbound report said.

Travel curbs keep out most foreign visitors. The government has stopped replacing passports that expire and has called on the public to avoid going abroad.

Last week, the US government cancelled 26 flights by Chinese airlines to China from the United States in a dispute over Beijing's anti-virus controls. China earlier forced American carriers to cancel the same number of flights after some passengers tested positive for the virus.

As China is central to several supply chains, the economic impact of Zero Covid has also hit countries other than China, which import either raw material, finished products, or have manufacturing units in the country.?

(With AP inputs)